By Lori Ann Lange
Changes related to the COVID-19 crisis and the construction and surety industries are still occurring; some data in this article may have changed from the time of article submission and the publication date.
With each new presidential administration, there are changes in policies as well as new laws and regulations that can impact government construction contractors. The first 100 days of the Biden Administration has seen some significant changes that affect government construction contractors, and we anticipate that there will be additional changes in the future. Below is a summary of some of the key changes from the first 100 days.
Revocation of the Combating Race and Sex Stereotyping Executive Order
On January 20, 2021, President Biden issued Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government. The Executive Order states that it is the policy of the Biden Administration that the Federal Government should pursue a comprehensive approach to advancing equity for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality. It further states that affirmatively advancing equity, civil rights, racial justice, and equal opportunity is the responsibility of the whole of the Government.
Section 10 of Executive Order 13985 revoked President Trump’s Combating Race and Sex Stereotyping Executive Order, which prohibited government contractors from providing certain types of diversity and inclusions training to their employees. Section 7 of Executive Order 13985 states that government contracting and procurement opportunities should be available on an equal basis to all eligible providers of goods and services. By January 20, 2021, the head of each agency has to consult with the Assistant to the President for Domestic Policy (APDP) and the Director of the Office of Management and Budget to produce a plan for addressing any barriers to full and equal participation in federal programs as well as any barriers to full and equal participation in agency procurement and contracting opportunities.
Buy American Executive Order
On January 25, 2021, President Biden issued Executive Order 14005, Ensuring the Future is Made in All of America by All of America’s Workers Executive Order. The Executive Order states that it is the policy of the Biden Administration that the Federal Government should use terms and conditions in federal financial assistance awards and federal procurements to maximize the use of goods, products, and materials produced in, and services offered in, the United States. The Federal Government, whenever possible, should procure goods, products, materials, and services from sources that will help American businesses compete in strategic industries and help America’s workers thrive.
The Executive Order directs the FAR Council to consider proposing amendments to the FAR by July 24, 2021 that would: (1) replace the current Buy American component test with a value added domestic content test; (2) increase the amount of domestic content requirements for end products and construction materials; and (3) increase the price preferences for domestic end products and domestic construction materials. It also seeks to limit Buy American waivers and to provide more visibility into waivers that have been granted.
Supply Chain Executive Order
On February 24, 2021, President Biden issued Executive Order 14017, America’s Supply Chains, with the stated policy of strengthening the resilience of America’s supply chains. Like the Buy American Executive Order, Executive Order 14017 focuses on increasing domestic manufacturing. It arises in part over concerns about America’s reliance of Chinese goods in key supply chains, although China is not specifically mentioned.
The Executive Order directs the Secretaries of Commerce, Energy, Defense, and Health and Human Services to submit reports identifying the risks in the supply chains for semiconductor manufacturing and advanced packaging, high-capacity batteries, critical minerals and other strategic minerals, and pharmaceuticals and active pharmaceutical ingredients and making policy recommendations to address these risks. The report is due by June 4, 2021.
Executive Order 14017 also directs various agencies to submit a report by February 23, 2022 on supply chain assessments. Specifically:
1. The Secretary of Defense must submit a report on supply chains for the defense industrial base and identifies areas where civilian supply chains are dependent upon competitor nations;
2. The Secretary of Health and Human Services must submit a report on supply chains for the public health and biological preparedness industrial base;
3. The Secretary of Commerce and the Secretary of Homeland Security must submit a report on supply chains for critical sectors and subsectors of the information and communications technology industrial base;
4. The Secretary of Energy must submit a report on supply chains for the energy sector industrial base;
5. The Secretary of Transportation must submit a report on supply chains for the transportation industrial base; and
6. The Secretary of Agriculture must submit a report on supply chains for the production of agricultural commodities and food products.
On April 13, 2021, the Department of Defense issued a notice of request for public comments in the Federal Register asking interested parties to comment and provide information related to the policy objectives in Executive Order 14017.
Although the Executive Order does not specifically state the steps the Biden Administration will take after the reports are submitted, it implies that one potential step may include federal incentives and amendments to federal procurement regulations to attract and retain investments in critical goods and materials and other essential goods and materials.
$15.00/Hour Minimum Wage
On January 22, 2021, President Biden directed his administration to “start work” that would allow him to issue an Executive Order that requires federal contractors to pay a $15/hour minimum wage to government contractor and subcontractor workers. On April 27, 2021, he issued an Executive Order on Increasing the Minimum Wage for Federal Contractors. The Executive Order directs the Department of Labor to issue regulations requiring workers working on or in connection with a covered government contract or subcontract be paid at least $15.00/hour. This minimum wage applies to new contracts, solicitations, contract extensions, and option exercises issued on or after January 30, 2022, when the contract, solicitation, contract extension, or option exercise is governed by the Davis-Bacon Act, the Fair Labor Standards Act, or the Service Contract Act. The $15/hour minimum wage will be adjusted annually beginning on January 1, 2023. Currently, covered government contractors and subcontractors have to pay their workers working on or in connection with a government contract at least $10.95/hour.
Proposed Withdrawal of the New Independent Contractor Rule
On March 12, 2021, the Department of Labor, Wage and Hour Division (WHD) published a notice proposing to withdraw the January 7, 2021 Independent Contractor Status under the Fair Labor Standards Act (FLSA) rule. The FLSA requires employers to pay minimum wages and overtime to covered employees. Independent contractors do not have these protections. The rule, which is scheduled to take effect on May 7, 2021, adopts an economic reality test to determine whether a worker should be classified as an employee or an independent contractor under the FLSA.
According to the notice, WHD is proposing to withdraw the rule for several reasons, including: (1) the rule’s economic reality standard has not been used by the courts or WHD and the test is not supported by the text of the FLSA text or longstanding case law; (2) the rule would minimize other factors traditionally considered by courts; and (3) the rule would not provide clarity – the intended purpose of the rule.
Proposed Recission of the Joint Employer Status Rule
On March 12, 2021, WHD issued a notice of proposed rulemaking seeking to rescind a rule regarding joint employer status under the FLSA. Among other things, the rule adopted a four-factor balancing test for determining whether another employer is a joint employer in a vertical employer joint employer situation (e.g., a situation where an employee has an employment relationship with one employer such as a staffing agency but another employer—the joint employer—is receiving the benefit of the employee’s labor and the economic realities show that the employee is economically dependent on the other employer). The test focuses on the alleged joint employer’s degree of control over the employee and considers whether the alleged joint employer: (1) hires or fires the employee; (2) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records.
The final rule took effect on March 15, 2020. However, it subsequently was vacated in large part by the U.S. District Court for the Southern District of New York on September 8, 2020. The Court held that the rule conflicted with the FLSA and unlawfully limits the factors WHD will consider in performing a joint employer inquiry.
Extension of Section 3610 of the CARES Act
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021. The Act extends Section 3610 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which permits federal agencies to reimburse certain government contractors—generally cost-reimbursement contractors—for paid-leave costs when the contractor is adversely impacted by COVID-19 stop-work orders and cannot work remotely. Relief under Section 3610 is extended until September 30, 2021. However, the Act did not provide any funding for the extension. Therefore, federal agencies will have to use any currently available funds.
American Jobs Plan
On March 31, 2021, the Biden Administration announced its $2 trillion American Jobs Plan, which the Administration describes as “an investment in America that will create millions of good jobs, rebuild our country’s infrastructure, and position the United States to out-compete China.” The plan seeks to:
1. Fix highways, rebuild bridges, and upgrade ports, airports, and transit systems.
2. Deliver clean drinking water, a renewed electric grid, and high-speed broadband to all Americans.
3. Build, preserve, and retrofit more than two million homes and commercial buildings, modernize our nation’s schools and child care facilities, and upgrade veterans’ hospitals and federal buildings.
4. Solidify the infrastructure of our care economy by creating jobs and raising wages and benefits for essential home care workers.
5. Revitalize manufacturing, secure U.S. supply chains, invest in research and development, and train Americans for the jobs of the future.
6. Create good-quality jobs that pay prevailing wages in safe and healthy workplaces while ensuring workers have a free and fair choice to organize, join a union, and bargain collectively with their employers.
It is unclear how much of the American Jobs Plan ultimately will be passed by Congress and when. Even if Congress only appropriates a portion of funds for infrastructure improvements, there should be a significant increase in federal transportation spending with increased opportunities for government construction contractors.
While we are still in the early stages of the Biden Administration, there already have been a number of initiatives regarding domestic manufacturing and production, increased pay and protections for workers, and planned infrastructure improvements that will have a significant impact on American construction companies. It remains to be seen what additional changes there will be in the future.
Lori Ann Lange is Chair, Government Contracts Practice in the Washington, DC office of the law firm Peckar & Abramson. She specializes in government contract law, bid protests, and corporate compliance counseling. She represents a range of government contractors, including construction contractors, major defense contractors, informational technology contractors, and service contractors. She can be reached at [email protected] or 202.293.8815 ext. 7103.
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